Premium Bonds now worth it?

DannySpud

With interest rates now tumbling everywhere are Premium Bonds now worth the investment again?

I have a small lump sum from an inheritance that I'd like to invest for a short period of time. I am planning to buy a house around June 2019 (when a major investment matures) and so I am looking for somewhere to leave this relatively short term. I have already got a HTB ISA that I'm maxing the contributions on (and which means I can't contribute to a cash ISA elsewhere) and my current account balance is normally around the limit of what it'll pay interest on. Seems to me the only places left to invest over a short-ish term that are "safe" (very low risk) are struggling to pay just 1% interest.

The current "interest rate" on premium bonds is 1.25% which seems like a decent rate in the current climate. I know there's the minimum £25 prize which means that there's a chance you won't get anything at all, but on average shouldn't the returns be higher?

What do people think, are premium bonds looking more attractive again compared to all these low interest rates? Also, have I missed any other obvious no/low risk investments that I should be taking advantage of?

mjm3346

Premium Bonds
Are they worth it?

http://www.moneysavingexpert.com/savings/premium-bonds

jimjames

DannySpud wrote: »

my current account balance is normally around the limit of what it'll pay interest on.

You've said current account in the singular not plural. If you want to maximise interest then multiple accounts will do that as well as regular savers. PBs are considerably less than those options even if you do get the average.

polymaff

DannySpud wrote: »

With interest rates now tumbling everywhere are Premium Bonds now worth the investment again?

The current "interest rate" on premium bonds is 1.25% which seems like a decent rate in the current climate. I know there's the minimum £25 prize which means that there's a chance you won't get anything at all, but on average shouldn't the returns be higher?

Don't know what that last phrase means - but, as an investment, it is best to consider the Premium Bond rate to be that for which you stand some chance of winning before you die. 90% of the prize fund goes to the low-value prizes - £100 and less - so 1.125% for non-taxpayers, 1.406% equivalent for basic-rate taxpayers and 1.875% equivalent for higher-rate taxpayers would seem to me to be reasonable benchmarks.

So, as Jim says, there are plenty of interest-bearing current accounts which can, for a non-taxpayer, beat Premium Bonds - but fewer that do it for basic-raters and even less that do it for high-raters.

Having exhausted interest-bearing bank accounts and regular savers, I've recently been putting money into PBs. On an average balance of £32k I've averaged £100 per month return recently - all £25 prizes. Can't last!

MONEYTREE_2

£100 a month on £32k.

Isn't that £1,200 pa? 4%?

polymaff

polymaff wrote: »

On an average balance of £32k I've averaged £100 per month return recently - all £25 prizes. Can't last!

MONEYTREE wrote: »

£100 a month on £32k.

Isn't that £1,200 pa? 4%?

It is - hence my final comment

Mr_K

mjm3346 wrote: »

Premium Bonds
Are they worth it?

http://www.moneysavingexpert.com/savings/premium-bonds

Martin's advice on premium bonds is becoming increasingly irrelevant. They are now looking as good/better as anything else. Time he swallowed his pride and amended it.

Koj

Came into some money earlier this year so have split it and put half into Premium bonds and the rest is in so many different current accounts and regular savers until i ran out of direct debits. Reckon should be just under the £1000 interest allowance. Be interesting to see how they compare in a years time.

greenglide

So no pension contributions and no stocks & shares ISAs?

Should at least be considered.

Koj

They are the next thing to look at when next sum arrives. Just wanted ready cash sorted first.

Flobberchops

For those uncomfortable with the random nature of prize payouts, don't forget NS&I also do Income Bonds. A simple way to earn 1% on £500+, and despite the word "bond" in the name have no maturity date and can be withdrawn at any time (in a £500+ lump).